The health reform law that Congress passed in 2010, The Patient Protection and Affordable Care Act (or ACA) contained a provision that required that the Centers for Medicare and Medicaid Services (CMS) establish a savings program to facilitate coordination and cooperation among providers in order to improve the quality of care for Medicare fee-for-service beneficiaries. On May 31, 2011, the Department of Health and Human Services proposed new rules to help doctors, hospitals, and other providers better coordinate care, through so-called Accountable Care Organizations (ACOs). The Department of Health and Human Services (HHS) estimates that ACOs could save the government up to $960 million in the first three years through avoidance of duplication.

An Accountable Care Organization (ACO) is a network of providers and hospitals that share responsibility for providing care to patients. ACOs make providers jointly accountable for the health of their patients, while also providing incentives to cooperate and save time, efforts, and money by avoiding unnecessary duplicative tests and procedures.

ACOs enter into a three-year agreement with the Centers for Medicare and Medicaid Services (CMS) to be accountable for quality, cost, and overall care of traditional fee-for-service Medicare beneficiaries, and are then eligible to receive incentives.

Payment is provided in a variety of methods; primary care physicians may receive normal fee for service payments with the ability to share savings or they may receive comprehensive (risk adjusted) payments for each person within their covered population. While an ACO may choose to accept insurance risk, the primary risk most ACOs will accept is based upon performance and cost.

Similar to a medical home, providers in an ACO are responsible for coordinating the care of a set population of patients. Note that it is essential for an ACO (particularly one that is primary care only) to have a sufficient population. The new law sets the floor at 5,000 Medicare beneficiaries for at least 3 years.

ACOs can exist in many shapes and forms; however three underlying essential characteristics of ACOs are:
1. The ability to provide, and manage with patients, the continuum of care across different institutional settings, including at least ambulatory and inpatient hospital care and possibly post-acute care
2. The capability of prospective planning budgets and resource needs;
3. Sufficient size to support comprehensive, valid, and reliable performance measurement.

In a basic ACO, the primary care physicians will utilize relationships with specialists, hospitals, and other providers. The ACO will look to work with those providers who offer higher quality and lower cost care. The “primary care only” ACO is able to target cost reductions related to prevention, appropriate use of tests and referrals, and preventable hospital activity.

The next iteration of an ACO adds major specialists to the organization. These specialists will share in savings or the global payment. The benefit to adding specialists is that—for major specialties—the specialist is incented to work to improve outcomes and look for more efficient delivery of care.

An ACO can also include a hospital. With a hospital within the network, the ACO can target better care of complex patients and can look to streamline critical patient processes. However, hospitals within an ACO may be challenged to agree on sharing savings or payments.

If focused geographically, an ACO can be expanded to include community health resources. Coordinating health resources at the community level can help extend prevention and support services.

Primary care doctors who are a part of an ACO would be required to tell their patients. Physicians may refer patients to hospitals and specialists within the ACO network, but ultimately patients would still be free to see doctors of their choice outside the network without an additional fee. ACOs would also be under pressure to provide high quality of care in order to meet standards and maintain their contracts.

ACOs do not eliminate the traditional fee-for-service payment system; however ACOs will provide incentives by offering bonuses when providers keep costs down and meet specific quality benchmarks, focusing on prevention and carefully managing patients with chronic diseases. Essentially doctors will be paid more for keeping their patients healthy and out of the hospital.

The Medicare Shared Savings Program is a new approach to the delivery of healthcare aimed at reducing that fragmentation, improving population health, and lowering overall healthcare expenditures by promoting accountability for the care of a Medicare fee-for-service population, while improving coordination for services provided under Medicare Parts A and B. Participants in the Medicare Shared Savings program would continue to receive fee-for-service payments. The organization or group is organized would be rewarded each year with an incentive payment for demonstrating high quality and efficient care delivery.

It should be emphasized that this is not a managed care program. This program is designed to provide an incentive for providers of fee-for-service care to improve the quality and efficiency of care delivery to a fee-for-service Medicare population. Eligible providers, hospitals and suppliers may participate in the Shared Savings Program by joining Accountable Care Organizations (ACOs).

The Shared Savings Program is scheduled to launch in January 2012. The race to form ACOs has already begun; hospitals, physician private practices, and insurers are announcing their plans to form ACOs for both Medicare beneficiaries and patients with private insurance plans.

The health reform law that Congress passed in 2010, known as the Patient Protection and Affordable Care Act (or ACA) has outlined the following requirements for potential healthcare professionals and groups that are interested in joining an ACO:

(1) Have a formal legal structure to receive and distribute shared savings;
(2) Have a sufficient number of primary care professionals for the number of assigned Medicaid beneficiaries (to be 5,000 at a minimum);
(3) Agree to participate in the program for not less than a three- year period;
(4) Have sufficient information regarding participating ACO health care professionals as the Secretary of the Department of Health and Human Services (HHS) determines necessary to support beneficiary assignment and for the determination of payments for shared savings;
(5) Have a leadership and management structure that includes clinical and administrative systems;
(6) Have defined processes to
(a) Promote evidenced-based medicine,
(b) Report the necessary data to evaluate quality and cost measures (this could incorporate requirements of other programs, such as the Physician Quality Reporting Initiative (PQRI), Electronic Prescribing (eRx), and Electronic Health Records (EHR), and
(c) Coordinate care;
(7) Demonstrate it meets patient-centeredness criteria, as determined by the Secretary of HHS, such as the use of patient and caregiver assessments or the use of individualized care plans.

For more information on ACOs contact the Department of Health and Human Services.